Although Tesla ( TSLA ) shareholders voted Thursday afternoon to reinstate Elon Musk’s pay package, some investors and analysts told Yahoo Finance they remain skeptical.
“The whole thing is a game of chicken and the shareholders blinked,” said early Tesla investor Ibrahim AlHusseini. “Fear of loss is a great motivator and Elon used that psychological mechanism to his advantage.”
The venture capitalist said he voted in favor of the $56 billion package without enthusiasm.
“The deal came together in 2018, when the milestones seemed virtually impossible and he achieved them,” said AlHusseini, who first invested in Tesla in a Series C financing round. “He made a deal, he delivered, and this is his reward.”
Shares of Tesla are down nearly 30% year to date and were down about 2.5% on Friday. With the voting over, AlHusseini said the share price should remain stable until the next quarterly results, predicting that “shares will fall due to renewed deliveries and margin misses.”
Tesla said 77% voted in favor of Musk’s pay package. According to the filing, investors voted with 1.76 billion shares in favor of approving the deal, while 528.9 million shares voted against it. 20.6 million shares did not vote.
“I want to start by saying, damn, I love you guys,” Musk said on stage at the shareholder meeting. The package, made up of options, was originally valued at $56 billion, but is now worth around $46 billion due to a decline in Tesla’s market capitalization.
In January, Judge Kathaleen McCormick of the Delaware Chancery Court ruled that the original pay package, which was approved by 73% of voting stock in 2018, was not fairly negotiated.
The vote to reinstate the package does not necessarily mean Musk will get the historic paycheck. A positive vote does not resolve the legal challenge and is unlikely to change the judge’s opinion. Legal experts say the final decision will be made by the Supreme Court and the Delaware Chancery Court.
New York City Comptroller Brad Lander, one of the shareholders who pushed for a vote against the package, called the approval “a mistake.” Lander has several pension funds that own approximately 3.4 million Tesla shares.
“We’ll see how Musk moves forward, if this leads him to focus on Tesla and develop clear growth plans,” Lander told Yahoo Finance. “But if it becomes another fight, distraction, Twitter feud and more ego, that’s not going to be a good thing.”
Tesla’s largest outside institutional shareholder, Vanguard, played a crucial role in brokering the deal. Vanguard, which owns 7% of Tesla stock, initially voted no in 2018, citing concerns about size relative to the company’s performance.
Ross Gerber, a veteran Tesla investor, has questioned Vanguard’s move. “Index funds are supposed to represent the public and often have expectations of corporate governance of the companies. It seems a bit strange that they voted for the compensation package and said it aligns with shareholder incentives – which it does, but at an outrageous value. he told Yahoo Finance.
Gerber, co-founder of investment company Gerber Kawasaki, voted yes in 2018, but this time argued for a no. He started investing in Tesla in 2014 and his company owns 332,000 shares as of March 31.
“The package is outrageous and his performance has been terrible over the last three years,” Gerber said. “But I believe in elections, so if that’s what shareholders want, that’s fine.”
Investors also approved a proposal to reincorporate Tesla from Delaware to Texas, which Musk pushed for after a judge voided his pay deal.
“This is part of the distraction problem,” Lander said. “Delaware has a set of relatively conservative laws that form the basis of shareholder capitalism. To then pack up your marbles and move to Texas because you’re angry at a judge who tells you to follow the rules, the question is: how do you reset?
Lander says that despite some worrying signs, he sees a strong foundation on which Tesla can build. He adds that they have no immediate plans to change their investment strategy.
“Elon deserves a lot of the credit,” Lander said. “Not a $56 billion share, but a very large share.”
Analysts say shareholders’ decision to reinstate Musk’s compensation package is a win for investors.
Canaccord Genuity director George Gianarikas, who has a buy rating on the stock, told Yahoo Finance that he is “very encouraged” by the confidence in Musk’s leadership.
“Elon Musk is critical to Tesla’s past and future success,” Gianarikas explains.
Gianarikas said Tesla’s prospects for full self-driving set the automaker apart from the competition, putting the company in an “incredibly enviable position.”
Wedbush’s Dan Ives, a longtime Tesla bull, described the approval as a “pop the champagne moment” for Musk and shareholders. He said the approval of the pay package removes a $20 to $25 overhang on shares.
“This is just the beginning of the next chapter, as Musk calls it, in Tesla’s growth story. It is one of the best disruptive names in the world,” said Ives. “It’s one of the best AI games on the market.”
Ives, who warns that a no vote could have led to Musk leaving Tesla, sees Tesla’s valuation surpassing $1 trillion by 2025 as Musk devotes more time and attention to the automaker.
“You now see the old-fashioned Musk returning… Tesla needs Musk and Musk needs Tesla,” Ives added.
But Dave Harden, chief investment officer of Summit Global, cautioned against buying Tesla stock at this time.
“It presents significant dilution opportunities for shareholders, and it makes people want to do things that are risky,” Harden said.
The company has not yet proven itself in AI and robotics, and major growth in electric vehicles has already occurred, Harden argues.
“I think there’s going to be a lot more talk and a lot more opportunities to get in when you can clearly see that the growth is going to happen,” Harden said.
“I would recommend holding Tesla and waiting. If you are in the stock, I would probably sell,” he added.
Yasmin Khorram is a senior reporter at Yahoo Finance. Follow Yasmin on Twitter/X @YasminKhorram and further LinkedIn. Send newsworthy tips to Yasmin: yasmin.khorram@yahooinc.com
Seana Smith is an anchor at Yahoo Finance. Follow Smit on Twitter @SeanaNSsmith. Tips about deals, mergers, activist situations or something else? Email seanasmith@yahooinc.com.
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